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Singapore's February headline inflation meets expectations at 0.5%

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There were no surprises from Singapore’s headline inflation in February, with consumer prices up by 0.5 per cent year on year - a tick above the 0.4 per cent growth notched the month before.

THERE were no surprises from Singapore’s headline inflation in February, with consumer prices up by 0.5 per cent year on year - a tick above the 0.4 per cent growth notched the month before.

But some analysts' hopes of imminent monetary policy tightening have faded, with more now expecting the central bank to leave its stance on Singdollar appreciation unchanged.

Core inflation - whichstrips out housing and private transport costs - was at 1.5 per cent, down from 1.7 per cent in January, according to the latest figures from the Department of Statistics, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Monday.

"This is the lowest since May 2018 and marked the second month of moderating inflation," noted Selena Ling, head of treasury research and strategy at OCBC Bank.

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"The early signalling that 2019 (gross domestic product) growth for the Singapore economy will come in slightly below the mid-point of the official 1.5 per cent to 3.5 per cent growth forecast is telling of the downside growth risks."

Inflation was supported in February by a more gradual fall in housing and transport expenses, as home rents, car and petrol prices did not drop as much. This made up for a slowing pace of price increases in categories such as services, retail items and electricity and gas.

Services inflation came in at 1.5 per cent, from 1.7 per cent before, on a slower rise in school fees and airfares, while the retail inflation was 1.1 per cent, against 1.4 per cent previously, as the increase in clothing and shoe prices was more modest.

Meanwhile, electricity and gas prices were up by 5.5 per cent in February, against 6.5 per cent in January, which the MAS and the MTI said in a joint statement reflected the effect of the national rollout - in phases - of the liberalised Open Electricity Market.

Food inflation was flat at 1.4 per cent, with the jump in prepared meal prices offset by a smaller rise in the prices of non-cooked food items. The cost of eating out was 1.6 per cent more than the year before, led by a 1.7 per cent hike in hawker food prices, while food items - such as bread, cereals, fruits and vegetables - cost 1 per cent more overall.

This was even as private road transport costs slid by 2.3 per cent, against 3.4 per cent previously, and housing costs fell by 1.6 per cent, down from 1.9 per cent before.

Still, HSBC economist Chen Jingyang said that the core inflation data could have been distorted by Chinese New Year, which fell in early February.

"The rise in consumption before the (new year) happened in late January instead of February this year," she said. "This can partly explain the moderation in the core inflation reading today."

Singapore previously lowered its full-year headline, or all-items, inflation forecast after a disappointing January reading, citing the toll of the global oil price slump.

Headline inflation is expected to be between 0.5 and 1.5 per cent, while core inflation is projected to fall between 1.5 and 2.5 per cent, the MAS and the MTI have said.

Watchers at United Overseas Bank, who had previously expected a third round of monetary policy tightening at the MAS’s half-yearly meeting in April, said in a report that they now expect the MAS to leave Singdollar policy unchanged “given that core inflation pressures will likely persist into H2 2019”.

“We continue to see higher inflation pressures into the year, given the supportive domestic labour market conditions which should underpin wage growth, though the likely delay of core inflation to cross its critical 2 per cent handle into H2 2019 could mean less impetus for MAS to tighten monetary policy at this Juncture,” the report added.

Citi analysts Kit Wei Zheng and Ang Kai Wei also remarked that "recent data may have weakened MAS' earlier hawkish bias sufficiently to argue for a pause in April".

Meanwhile, JPMorgan economist Benjamin Shatil, who predicts that core inflation will stabilise around 1.6 per cent through the middle of the year, noted: "Mechanically, the lower core inflation trajectory, as well as a smaller positive output gap through 2019, implies less urgency for further policy tightening."